Advice for manufacturers during COVID-19
The COVID-19 outbreak has caused major disruption across global markets, with restrictions on human movement disrupting the majority of sectors.
Manufacturers are facing the problem of having reduced or totally absent teams, a pause to supply chains and an aggressive decline in customer demand. The resulting cashflow implications will be significant, with many fixed costs draining cash reserves and the uncertainty of lockdown periods making management decisions very difficult.
What can you do?
You should assess the recently announced government backed initiatives in order to ascertain what can be used and what impact they may bring.
The deferral of tax balances will bring an immediate cashflow saving and the use of the Coronavirus Job Retention Scheme can also yield savings. The Coronavirus Business Interruption Loan Scheme can also be considered for those businesses with proven viability and an historic financial performance that demonstrates the ability to service new debt.
Initial thoughts and decisions will be largely on an assessment of what options business owners have at their disposal and the ultimate execution of those options.
Business owners should also consider the working capital implications of exhausting reserves in the immediate term, with the problem looming as to how you can fund the recommencement of operations in the post lock down period.
You should therefore take care of your financial plan, with your eyes focused on the security you have pledged to external funders and that which may be sought during any CBILS application. Longer term assessment of overall indebtedness should also feature, with a lot of government initiatives being debt based, which by their nature will require repayment. This will therefore pose directors some challenge as they balance their wider responsibility to all business stakeholders.
How can you manage the cashflow risks?
A thorough and robust financial plan will be central to your business planning in the coming months. Additionally, the use of your advisers will be key during any negotiations undertaken with your funders. Capital holidays and short term facility extensions will provide temporary respite, but you should look beyond the initial period of uncertainty and retain some focus on what comes next.
The re-opening of markets will see the re-emergence of demand, but this may not be swift. A gradual build up could be in order for a lot of markets. The risk of customer and supplier failure should also be considered, with contingency plans drawn up.
The demands and pleas for prompt or upfront payment are likely and a natural drift in credit terms may also be imposed by your larger clients. You should therefore assess those impacts and build a cash buffer, with attention required on the covenant suite your funders will have in place. Keeping your books and records up to date will therefore be imperative and allow maximum flexibility as you continue to make strategic decisions.
What else should you consider?
Non-financial considerations will also be vital, as well as the re-introduction of your team in to the workplace. Workforce morale and overall productivity should therefore be monitored closely. Repairs, maintenance and reconnection of idle plant and machinery will also need consideration.
The considerations for business owners are extensive and will move and change due to ongoing problems which may linger due to COVID-19.
Cash management will drive focus and risk monitoring will be an increased priority as we proceed through 2020.
How can we help?
The MHA Tait Walker team have extensive experience in planning and managing cashflow and have relationships across all major funders.
Our advisory teams can also assist with strategic planning and can offer guidance around accelerated tax planning which could prove useful with any negotiation needed with HMRC.
Please contact Lee Humble, Corporate Finance Associate Partner for further advice.